UPDATE 1-China CNPC agrees oil deal in Afghanistan

Wed Oct 19, 2011 11:05am EDT

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(Add contract details, background)

* Afghan mine ministry official sees initial $300 mln investment

* Contract terms agreed, awaiting top signoff

* CNPC agrees to pay 70 pct profit to Afghan government

By Zhou Xin

KABUL, Oct 19 (Reuters) - Chinese state-owned oil giant China National Petroleum Corp (CNPC) has reached final agreement with the Afghan government to develop an oil field there, an Afghan mines ministry official told Reuters on Wednesday.

Jalil Jumriany, policy director at the mines ministry in Kabul, said the terms of the oil project have been finalised and senior leadership on both sides were expected to approve it within two months.

"The investment of the project will be huge, and in the first two years, the investment will be at least $200-300 million," Jumriany said.

Officials at CNPC in Beijing, the parent company of PetroChina , declined to comment immediately.

The deal covering drilling and a refinery in the northern province of Sar-e Pul is the first international oil production deal entered into by the Afghan government for several decades.

It marks another landmark deal for the Chinese investors in Afghanistan after Metallurgical Corp of China (MCC) signed a contract in 2008 to develop the huge Aynak copper mine south of Kabul, due to start producing by the end of 2014.

Jumriany said CNPC has agreed to pay a 15 percent royalty on oil and 30 percent corporate tax. On top of that, CNPC will give 70 percent of its profit from the project to the Afghan government, he added.

"It will bring almost $5 billion to the government of Afghanistan in the next 10 years," Jumriany said.

He added that the oil field development project, which will be run by a 75:25 joint venture between CNPC and a local partner, could create 7,000 jobs.

Preliminary works including environmental impact assessment are underway, and building is likely to start early next year, Jumriany said.

CNPC was chosen by Kabul in September as a preferred bidder to develop three oilfields in Kashkari, Bazarkhami and Zamarudsay, which contain an estimated 80 million barrels of crude oil.

Experts have warned that mining projects in Afghanistan are likely to be targets for insurgents, that production and transportation costs will be high, and sovereign risk a serious concern.

China, which relies on imports for more than half of its fast-growing domestic consumption, is willing to take risks to secure energy supply, Chinese researchers have said. (Editing by Daniel Magnowski and Jason Neely)

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